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Economy - Development | Society

Zambia mine "tax fraud" causes outrage

Copper mine in Zambia

© Christian Aid/afrol News
afrol News, 18 February
- A leaked auditors' report alleging massive tax irregularities in Zambia's key copper mining sector "must lead to" further investigations, civil society groups demand.

In Zambia, a country struggling with widespread poverty, copper mining is a key revenue source. afrol News earlier has reported how Zambia both receives too low prices for its copper and sets too low taxes for the mighty mining companies.

Now, a subsidiary of one of the world's largest commodity trading companies stands accused of a series of tax irregularities in Zambia. According to a leaked auditors' report, the copper and cobalt mining company Mopani Copper Mines Plc may be using derivatives trades to shift profits out of Zambia in order to minimise its tax bill in the country.

The leaked report follows a pilot audit of Mopani. According to the report, Mopani was also unable to satisfy auditors that its sales of copper, mostly to sister companies, were in line with the "arm's length principle" which is supposed to help prevent tax dodging in trades between different parts of the same company.

Nor did the company convince the internationally hired auditors - from Grant Thornton Zambia and Econ Pöyry (Norway) - that its records of expenditure and income were trustworthy.

For instance, the audit report questions Mopani's claim that its labour costs increased dramatically between 2005 and 2007, saying that "at least US$ 50 million of the US$ 90 million is thus unexplainable."

As a result of these and other concerns, the auditors suggest that Zambia's tax authority should reassess the company's tax bill.

"We believe that the Mopani cost structure cannot be trusted to represent the true nature of the costs of the Mopani mining operation and that there is reason to follow up the uncovered inconsistencies in a more determined manner," say the auditors.

The auditors also complained about the lack of cooperation they say they initially received from the mining company. "Mopani has used every opportunity to hamper the progress of the audit and the audit team are at the moment not able to conclude whether the copper production from Mopani is trustworthy or not," says the report.

Mopani's Swiss owner Glencore, on the other hand, has issued a statement refuting the auditors' report. "This draft report contains factual errors and inaccuracies. It is based on broad and flawed statistical analysis and assumption," a Glencore spokesman said. The company had entered discussions with Zambian tax authorities over the issue earlier this month.

In Zambia, the civil society group Centre for Trade Policy and Development (CTPD) is eager to see more government openness and investigations into the alleged tax manipulations. "This is a wakeup call to the government of Zambia to do a financial audit of all mining companies, so that the Zambian Revenue Authority can update its assessments of the tax owed. Donor countries should support this," said CTPD director Savior Mwambwa.

The pilot auditors report on Mopani was commissioned by the Zambia Revenue Authority (ZRA), and is dated 2010 but only became public after it was leaked by civil society groups. According to Zambian media, the ZRA regretted the leaking of the report.

Zambia's Finance Minister has said that the government will wait for the complete mining audit report before taking action. But civil society calls for action now.

Mr Mwambwa added that auditors' report "appears to confirm the claims of Zambian civil society that mining companies are depriving the people of Zambia of social and economic benefits that are rightly theirs through tax evasion and avoidance practices."

CTPD's sister organisation Christian Aid has previously documented the huge difference between the price that Zambia receives for its copper exports and the dramatically higher price that Switzerland receives when it exports apparently identical copper products.

"Had Zambia been able to obtain the same prices as Switzerland, then it would have almost doubled the country's GDP, which in 2008 was US$ 14.3 billion," according to Christian Aid.

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